13th Jul 2016 15:49
LONDON (Alliance News) - Pub operator JD Wetherspoon PLC said sales continued to grow as its financial year comes to a close but margins have continued to be squeezed, while its Brexit-supporting chairman said the outlook for the company was strong.
Wetherspoon said sales for the 11 weeks to July 10 grew 3.8% year-on-year and rose 5.5% in the 50 weeks to the same date.
However, margins remain under pressure for the group. Wetherspoon said its expects its full-year operating margin, before exceptional items and before a GBP3.8 million property gain, will be around 6.8%, compared with 7.4% last year. The decrease in its operating margin reflects the introduction of the National Living Wage, which came into force in August 2015 and saw an increase in the rate of hourly pay for minimum wage staff to GBP7.20.
The group has warned since the National Living Wage was announced last year that it would add "considerable uncertainty" to the financial performance of the pub industry as a whole.
Margins began to slip for Wetherspoons around two years ago, when the first half of its 2014 financial year saw margins dip slightly to 8.2% from 8.3% the year before. This accelerated when margins fell to 7.4% in the first half of financial 2015, 6.3% in the first half of the current financial year, and now to 6.8% at the end of the financial year.
Since margins began to be squeezed, the company placed emphasis on increasing footfall and sales rather than raising prices. The company's focus on value leaves it with less room to offset higher labour costs, as pricing flexibility remains limited to keep the retailer cheaper than rivals.
Panmure analyst Anna Barnfather said increased competition in the casual-dining sector could put further pressure on Wetherspoons, as well as their business model leaving the company more exposed to potential food inflation post-Brexit.
The decrease in year-on-year margins has worried some. Shore analyst Greg Johnson said, although revenue had increased, he "would be more positive if we could get greater confidence that margins were stabilising".
However, the pub retailer's operating margin of 6.8% still exceeded Investec's predicted 6.5%, and many expect margins to go up over the coming years. Panmure has upgraded its 2016 earnings per share forecast by 6.5% and 2017 by 3.0%, reflecting "better margin and share buyback".
Wetherspoons Chairman Tim Martin said the company anticipates "a modestly improved outcome for this financial year". However, he said "caution should be exercised in extrapolating current levels of sales growth for future years."
Martin was a prominent leave campaigner throughout the referendum and said in a statement on Wednesday, "by voting to restore democracy in the UK, I believe the UK's economic prospects will improve". However, he believed remain campaigner's "doom-mongering" comments could lead to "some kind of [economic] slowdown".
He referred to comments made by some of those campaigning to remain in the European Union as "dishonest" and "extremely negative", such as statements from the head of the IMF, Christine Lagarde, outgoing UK Prime Minister David Cameron and Bank of England Governor Mark Carney.
"In spite of the dire warnings," Martin said, "Wetherspoon trade strengthened slightly in recent weeks."
According to the chairman in May, Wetherspoon buys 95% of its wine from outside of the EU, despite some of the biggest wine producers in the world being countries within Europe, as the company have been unable to reach deals concerning price and quality with countries such as France, Italy and Spain.
He indicated Wetherspoons, as a company already open to trading outside the EU, will see an economic benefit following the UK's EU exit. In contrast to some other pub operators, post-Brexit trading has been positive for the pub chain.
Shares in Wetherspoon were up 2.3% at 759.50p Wednesday afternoon.
By Lucy Heming; [email protected]
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